Islet transplantation within mechanically stable microcapsules offers the promise of long‐term diabetes reversal without chronic immunosuppression. Reinforcing the ionically gelled network of alginate (ALG) hydrogels with covalently linked polyethylene glycol (PEG) may create hybrid structures with desirable mechanical properties. This report describes the fabrication of hybrid PEG‐ALG interpenetrating polymer networks and the investigation of microcapsule swelling, surface modulus, rheology, compression, and permeability. It is demonstrated that hybrid networks are more resistant to bulk swelling and compressive deformation and display improved shape recovery and long‐term resilience. Interestingly, it is shown that PEG‐ALG networks behave like ALG during microscale surface deformation and small amplitude shear while exhibiting similar permeability properties. The results from this report's in vitro characterization are interpreted according to viscoelastic polymer theory and provide new insight into hybrid hydrogel mechanical behavior. This new understanding of PEG‐ALG mechanical performance is then linked to previous work that demonstrated the success of hybrid polymer immunoisolation devices in vivo.